EUR/AUD: Aussie to benefit from expectations of a Biden victory – MUFG

Analysts at MUFG Bank see a trade idea of shorting the EUR/AUD pair at 1.6360 with a target at 1.5900 and a stop-loss at 1.6700. They see that COVID related developments and the US election risks favor the Australian dollar over the euro. 

Key Quotes:

“We are recommending a short EUR/AUD trade idea to reflect in part the recent divergence in the spread of COVID-19 which will have implications for relative economic performance going forward.”

“Improving business confidence in China continues to signal that the economic recovery will continue. USD/CNY has fallen sharply to its lowest level since April 2019. Favourable cyclical momentum in the region could also prove supportive for further AUD upside.”

“We expect the AUD to continue to benefit from rising expectations over a Blue Wave at the US election. It would open the door to more significant US fiscal stimulus providing support for global growth, and a likely easing of US-China trade tensions.”

“There are downside risks to the trade idea including a significant hit to global growth from COVID second waves and the likelihood of further RBA easing. However, we do not expect a limited RBA rate cut and more QE to materially weaken the AUD on their own.”